The year started with the fresh funding round by food delivery startup Zomato in February, raising about $200 million from Ant Financial Group, followed by Paytm, which raised about Rs 2,900 crore (around $450 million) in April 2018 from SoftBank Investment Holdings and existing investor Alibaba to fuel its growth plans.
After witnessing a hyber-funding wave in 2014-2015 and then a decline in 2016, investments in Indian startups seem to have made a come back with more and more technology startups raising capital in quick succession. There have been 11 deals worth $100 million or more this year, in mostly mid-to-late stage funding rounds, by companies including Paytm, BigBasket, Policybazaar, BookMyShow, Swiggy, Zomato and Gaana.com, among others, according to data provided by analyst firm Tracxn Technologies.
A total of 531 deals have been struck by startups this year (till August 15), aggregating to about $4.4 billion. In the month of July itself, Indian tech companies raised about $626 million through 81 deals compared with $224.54 million raised through 82 deals in the same month last year, the data showed.
According to industry experts, technological innovation is constantly developing and startups are generally at the forefront to feed off these advancements. Besides, Flipkart-Walmart deal seems to have injected an optimism in the industry.
“A number of businesses are now looking at acquiring ‘tech-enabled services’ thus driving both M&A as well as funding in this segment. Another key factor is the Walmart – Flipkart deal which has re-ignited confidence in India’s entrepreneurial story and could spur competition amidst global players looking to tap into the opportunity,” said, Sanjeev Krishan, Partners at PwC. In May, US e-commerce major Walmart announced to acquire 77% equity stake in home-grown Flipkart for $16 billion, valuing the Indian consumer internet giant at $21 billion.
Interestingly, the year 2018 saw investors chasing already strong category startups and more mid-to-late stage players raising capital. The year started with the fresh funding round by food delivery startup Zomato in February, raising about $200 million from Ant Financial Group, followed by Paytm, which raised about Rs 2,900 crore (around $450 million) in April 2018 from SoftBank Investment Holdings and existing investor Alibaba to fuel its growth plans.
“Venture Capital funds have been actively raising new funds with an aim to target opportunistic deals in the startup space. Additionally, investors from the far-east i.e. Singapore, China, Hong Kong, Japan, etc. have also been particularly active and continue to express interest in this segment,” he said, adding that the space, which has matured over the last few years, could also see consolidation in the space as a number of players are keen to expand their presence.
This year however could see a more cautious approach compared with 2015 with valuations continuing to be a concern for investors.
“Fundraising environment is cautiously optimistic at this point…The year should end on a positive note for the Indian startup ecosystem. We should see more exits along with the funding,” said Manish Singhal, founding partner, pi Ventures.
It may be noted that investments in start-ups recorded a drop in 2016 after the record highs in 2015. There was a decline of about 47.7% in investment value in startups in 2016 compared with the previous year, according to data by Tracxn provided earlier.
“This was driven primarily by a greater than 50% decline in the number and value of e-commerce deals following valuation concerns as e-commerce firms struggled to contain their cash burn amid intense competition…The tide, however, seems to have turned with new sectors of interest emerging in financial services and logistics. E-commerce continues to be the sector to receive the largest amount of start-up funding now as well,” said Mahesh Singhi, managing director, Singhi Advisors.
However, he believes that the country is still the most attractive emerging market for global investors, given the strong exit performance in the last three years. However, at the time time, this strong exits trend is vital for keeping the investor enthusiasm about India intact.